Too much pessimism about the NZD?

Too much pessimism about the NZD?

2019-11-11 • Updated

The New Zealand’s dollar has long ago fallen out of traders’ favor. Have a look at the CFTC data and you’ll see that positioning in the NZD has been extremely short. The latest release showed that net short positions on the New Zealand’s currency have actually reached record levels:

Screenshot_26.png

Usually, when the market gets this one-sided a correction comes. This is what might have happened last week: speculators covered their excessive short positions on the NZD and the currency recovered. Will the recovery continue?

Problems of the NZD

First of all, let’s see what made the NZD decline in the first place. There are 2 sets of reasons: external (trade wars that may hurt New Zealand’s key trading partner, China) and domestic (low inflation, declining consumer confidence).

The Reserve Bank of New Zealand started warning in July that it could cut interest rates over coming quarters if the economy does not pick up sufficiently to support a return of the consumer price index (CPI) growth rate closer to 3% target. Such an approach is in sharp contrast with the policy of the US Federal Reserve which is engaged in a rate hike cycle. As a result, there’s nothing surprising in the downtrend we see in NZD/USD.

To be fair, the latest releases from New Zealand haven’t been too bad. The nation’s GDP rose by 1% in Q2, the fastest increase in two years. CPI growth accelerated to 0.9% in Q3 from 0.4% in the previous period (bringing the annual inflation rate to 1.9%). Such an increase in prices may be largely explained by the rise in petrol cost which pushed transport prices higher.

So, even though New Zealand’s economy is showing signs of improvement, it’s too early to expect the RBNZ to acknowledge these developments. In addition, external risks remain and are as evident as ever as China’s economy is not experiencing the best of times.

Short-term picture and course of action

It seems that in the medium term, the USD will still prevail over the NZD. On the shorter horizon, though, the NZD has a chance. Traders may keep covering their short positions thus making the NZD exchange rate go up. Improvements in the market’s risk sentiment, as well as the disappointing data releases in the US, could also offer cues for recoveries.

Support for NZD/USD lies at 0.6540 and 0.6500. A decline below the latter will open the way down to October low at 0.6420. The pair’s in a general downtrend. There’s a strong resistance around 0.6585 (50-day MA, daily Ichimoku Cloud) ahead of 0.66 (trendline resistance). Only a rise above 0.66 will allow a retracement up to 0.6650, 0.6675, and 0.67.

NZDUSDDaily.png

Pay attention to AUD/NZD. Australia's ruling coalition lost its majority in the House of Representatives. This brings some uncertainty for the AUD. A decline below 1.0750 will bring the pair down to 1.0640.

AUDNZDWeekly.png

Upcoming events

NZD:

Oct 25 - New Zealand’s trade balance

Oct 31 - ANZ business confidence index

USD:

Oct 25 - Durable goods orders

Oct 26 - Q3 GDP growth

AUD:

Oct 31 - CPI

Similar

What Can Drive Oil below $90 a Barrel?
What Can Drive Oil below $90 a Barrel?

The past two years have seen the biggest swings in oil prices in 14 years, which have baffled markets, investors, and traders due to geopolitical tensions and the shift towards clean energy.

What will move the market on September 6-10?
What will move the market on September 6-10?

Last Friday’s NFP was disappointing. The reaction of the markets was astonishing. Will it last longer? Let's find out the main trade opportunities for the upcoming week.

Latest news

Best Instruments to Trade This Week
Best Instruments to Trade This Week

This week, there are a few high-probability trade ideas I'd like to recommend to you. Trading these setups, be sure to implement a proper risk management approach.

European Currencies Ahead of the Banks' Statements
European Currencies Ahead of the Banks' Statements

On Thursday, the 2nd of February, the Bank of England will publish its report concerning interest rates and inflation data for the Eurozone. Professionals and investors anticipate that Andrew Bailey’s lead team of policy makers will likely raise interest rates to 4%; the highest in over a decade, for the tenth time in a row.

Will the FOMC Surprise the Markets?
Will the FOMC Surprise the Markets?

The first FOMC meeting comes after a buildup of anticipation from traders and investors alike, as the markets await what posture the Fed will take regarding the interest rates; would there be a hike or a cut in interest rates?

Deposit with your local payment systems

Feel the Team Spirit

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera